Battered Linuxcare receives new funding

Linuxcare, a seller of Linux services and support trying to regain its footing after a series of management and financial setbacks, is about to close a new round of funding, sources said.

The funding round, expected to close as soon as today, will include an investment from Charter Ventures as well as earlier investors Kleiner Perkins Caufield & Byers, Patricof & Co. Ventures and others, sources said.

Representatives from Linuxcare and Kleiner Perkins declined to comment. Representatives of Charter Ventures and Patricof couldn't immediately be reached for comment.

Linuxcare sells consulting services, training and technical support for Linux, a clone of the Unix operating system that's available for free and has achieved widespread popularity.

The San Francisco company was hit by a succession of problems earlier this year, including the departures of its chief executive and chief information officer, layoffs, a postponed initial public offering and cooling investor enthusiasm for Linux companies.

Linuxcare said earlier it was seeking $25 million to $35 million in funding.

A new round of funding will be necessary to bring Linuxcare back from the brink and restore its status as one of the earliest companies to make a serious go at turning Linux's popularity into a business. But the funding is no guarantee that it will be able to stave off new and current competitors.

Those include Red Hat and VA Linux Systems, companies that got their IPOs out of the way before Wall Street became more cautious. And there is no shortage of newer companies, such as SteelEye Technology and Mission Critical Linux, which focus on making comparatively crash-proof Linux systems.

Also on Linuxcare's radar is start-up Olliance, which offers strategic consulting for Linux and other open-source software.

WR Hambrecht analyst Prakesh Patel believes the market is growing for open-source services, though Red Hat and VA Linux Systems are ahead in terms of attracting top Linux programmers. "As open-source software gets more pervasive, there will be great demand," he said. "In a supply sense, the market is good."

Though Linuxcare has struggled, it hasn't closed shop. IBM acknowledged Linuxcare's help in bringing Linux to IBM's upcoming Power4 chip, due to ship in servers in 2001. IBM is among the most aggressive companies in adopting Linux and has signed partnership deals with several Linux companies.

In May 1999, Kleiner Perkins provided venture capital backing for Linuxcare. Patricof led a later round of strategic investments from other companies, including big-name computing companies Dell Computer, Oracle, Sun Microsystems and Motorola.

News.com's Paul Festa contributed to this report.